The House Judiciary Committee today voted at a markup hearing to send House Bill 4777,
the Nondebtor Release Prohibition Act of 2021, to the full House of Representatives for consideration. The bill would restrict nonconsensual nondebtor releases in chapter 11 cases and require the dismissal of bankruptcies filed after an entity undergoes a divisional merger under Texas or Delaware law - the so-called “Texas two-step.”
The vote to report the bill out of committee was 23-17.
Chairman Jerrold Nadler, D-N.Y., said that the bill would end “extreme abuses” of the corporate bankruptcy system, citing the Texas two-step
bankruptcy filing of LTL Management LLC by Johnson & Johnson and the nonconsensual nondebtor releases for the Sackler family in the
Purdue plan.
The
bill is sponsored by Nadler, who offered an
amendment during the hearing that substituted the original text for that of a substitute. The substitute text is substantively the same as the original, according to Nadler, but includes typographical and grammatical fixes. Other co-sponsors of the bill are Reps. Carolyn Maloney, D-N.Y., David Cicilline, D-R.I., Peter DeFazio, D-Oreg., and Katie Porter, D-Ca.
The bill, along with other reforms of the chapter 11 process, were the focus of a July 28
hearing of the House Judiciary Committee Subcommittee on Antitrust, Commercial and Administrative Law. At the hearing both Nadler and Cicilline, who chairs the subcommittee, offered pointed criticism, with Cicilline calling the Bankruptcy Code “broken” because it allows nondebtors guilty of the “most horrifying conduct imaginable” to hide behind an “opaque complex” of Bankruptcy Code provisions and “complicated practices.”
Sen. Elizabeth Warren, D-Mass., along with co-sponsors Richard Durbin, D-Ill., and Richard Blumenthal, D-Conn., introduced the
bill in the Senate, where it has been referred to the Senate Judiciary Committee.